Castorocauda was found in the Jiulongshan Formation (which is also called the Haifanggou Formation) of China, which preserved a nearly complete skeleton and skull, along with carbonized impressions of the skin and hair. Like living mammals, it had integument with an undercoat and guard hairs. Although it was not directly related to living beavers, it possessed a broad and flat tail with a scaly covering. In addition to this swimming specialization, Castorocauda also had adaptations for digging. The dentition indicates a carnivorous, fish-eating diet.

The discovery of Castorocauda and other Jurassic taxa shows that mammals were a diverse widespread group, even early in their history. Jurassic mammals were found in both the Northern and Southern hemispheres. In addition to the large semiaquatic Castorocauda, some Jurassic mammals, such as Ambondro, were small insectivores, whereas others, such as Fruitafossor, were specialized for digging. Still others, such as Haldanodon, were possumlike generalists.